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When attempting to profit off of the market in one way or another, an entity, be it a fund, individual investor, institution, etc., must first decide on what actual financial instruments are to be considered before a strategy is created to profit from said instruments.

I realize this is rather general, but are there any references/terms to search for regarding how to choose what instruments we are going to even consider (e.g. debt, equity, futures, options, etc.) and what we "allow" when trading said instruments (e.g. long/short/etc.)?

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  • This is far too general. Read some investing advice from reputable or well-known sources. Talk to a financial planner. Then if you have specific questions you can ask them here. Nov 3, 2023 at 14:15
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    Perhaps "asset class" might cover some of the concepts you're after Nov 3, 2023 at 21:20

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It's a very open ended question, but you could try to answer this from a risk perspective. For example:

You believe that Us companies will do well in the next 5 years, so you want risk exposure to their valuations and income streams. But, you don't want single company risk, position liquidity risk or counterparty risk.

=> an index future strategy or ETF fund position would make sense.

In other words, selecting a strategy composed of instrument positions is the solution you come up with to satisfy your risk requirements. Ie, what risks do you want, and what do you not want?

In terms of exactly how to choose, you'll need expertise in what the various instruments are and how they deliver risk, and then expertise in how they can be combined into strategies. From there, you'll need risk modelling to determine what strategies look like good deals in the market right now.

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  • Thank you for the detailed answer, I think this covers things and I'll have to piece through this further! :)
    – QMath
    Feb 7 at 8:40

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